Trade walls would hurt Canadian and U.S. economies, 2 new reports suggest

Thickening of the Canada-U.S. border would benefit Asia and Europe, not North America

The U.S. border crossing in Lacolle, Que., south of Montreal, is seen in this photo. A report out Tuesday says that trade between Canada and the U.S. accounts for almost $1.09 trillion US of the United States' GDP. (Ryan Remiorz/The Canadian Press)

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Both Canada and the United States will suffer economic harm if trade between the two countries becomes more expensive, suggests a pair of new reports released Tuesday.

"Hampered trade will mean job loss, decreased economic output, higher costs of production, lower returns for investors, fewer choices, and higher costs for consumers," says one of the reports, which comes from Western University's Ivey School of Business and the Lawrence National Centre for Policy and Management.

The report was released just a day after Prime Minister Justin Trudeau met with U.S. President Donald Trump at the White House in Washington, D.C. Trump said during a news conference that he was in favour of "tweaking" the North American Free Trade Agreement.

Canadian businesses may be relieved at that statement as Trump had earlier said he wanted to either extensively rewrite or rip up the trade deal, primarily over concerns of U.S. jobs going over the border to Mexico.

"We'll be doing certain things that are going to benefit both of our countries," Trump said Monday.

Prime Minister Justin Trudeau and U.S. President Donald Trump take part in a joint press conference at the White House on Monday. Trade was on the agenda. (Sean Kilpatrick/Canadian Press)

Against the backdrop of concerns over the future of Canada-U.S. trade, the newly released study looks at the relationship of Ontario and the eight U.S. states that make up the Great Lakes region , known as the the GLS8 — New York, Indiana, Pennsylvania, Illinois, Ohio, Michigan, Minnesota, and Wisconsin.

"In order to remain competitive, the Ontario-GLS8 cluster must operate as efficiently as possible by avoiding these cost increases and limiting red tape," the study says. "The manufacturing plants that 'win' through a thickening of the Canada-U.S. border are not in North America; rather, they are Asia or Europe, as Great Lakes firms will no longer be able to compete with low-cost developing regions."

The report points out that trade between Canada and the U.S. accounts for almost $1.09 trillion US of the United States' GDP and impacts over eight million jobs. Additionally, exports to Canada make up more than 24 per cent of all U.S. exports.

"A thickening of the Canada-U.S. border threatens to reverse decades of progress," the study says.

Bad for Canada too: C.D. Howe

In a separate report also released Tuesday by the C.D. Howe Institute, its authors say Canada is heavily exposed to the ramifications of a potential U.S. border tax.

Trump has threatened to slap a border tax on products imported into the U.S. from Mexico, raising concerns that Canadian goods shipped to the U.S. could also be affected

If a BAT, or border adjustment tax, is brought in the United States on imported goods, Canada would not fare well, the C.D. Howe Institute said.

"The import component of a BAT would impact heavily on U.S. firms' decisions on sourcing from Canada," said the study's authors, Dan Ciuriak and Jingliang Xiao. Canada would feel a "significant shift:" in U.S. firms switching to domestic sources.

The C.D. Howe's preliminary findings suggest a U.S. BAT would lead to a decline in Canadian real GDP of about one per cent and a drop in Canadian prices of about two per cent, as Canadian firms cut their prices to limit the erosion of their exports to the United States.

Due to the fact that Canada's exports to the United States are heavily weighted to intermediate inputs, such as raw materials, basic fabricated materials, and manufactured inputs such as auto parts, Canada's worst-hit industries in terms of diminished exports would include autos, fossil fuels, and machinery and equipment, the authors said.

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